Mobile Applications (or 'apps' for short) allow users of tablet computers or smart phones to use a program (app) built to run on their device to achieve a specific purpose. Very often apps interact with web accessible information - for example, an online store like eBay - but sometimes they don't - for example the extremely popular Angry Birds game app.
A Smart Phone Friendly Website on the other hand, is a website that has been built to display nicely in the very much smaller viewport (or screen) of a mobile phone with an internet connection...